Have you been approached by a buyer who wants to acquire your business? Congratulations! You should be flattered. A buyer has taken notice and desires to own the baby you have spent a lifetime building. This can be very thrilling.
Given how much capital is searching for deals and how aggressive both strategic and private equity buyers have become, you should expect to receive an unsolicited offer. Surveys of owners indicate that nearly 1 in 3 businesses receive an unsolicited offer every 12 months.
If a buyer approaches about buying your business, how should you respond? How should you handle it? What steps should you take?
This article provides several items to consider when approached about selling your business.
Make a list of your questions and concerns and try to answer them
Making a list of questions and concerns will begin to provide a framework to determine if the unsolicited offer is even worth considering. For example, here is a list of typical questions a business owner will have:
- Do I want to sell? If so, what does my life look like afterward?
- How much is my business worth? Is the offer in the ballpark? How do I know?
- If there is one interested suitor, are there others? If others, how do I find them? Would they be willing to offer a better deal?
- What will be required to execute a sale? Who will help me manage the sale process and execute the deal while I run my business?
- Who will run the business after I sell it? Am I willing to remain involved?
- What are the tax consequences and net proceeds I would receive? What will I do with these proceeds after I consummate a deal?
Knowledge is power and being able to answer these questions with clarity and confidence is critical before entering into any meaningful conversations with a potential buyer. The answers will guide your next steps.
Respond professionally and respectfully, but remain cautious
You should respond professionally and respectfully regardless of whether you will entertain an unsolicited offer or not. This person presumably thinks well enough of your business to contact you, so show some appreciation. Plus, even if you are not interested in selling now, you may change your mind in the future and you do not want to create ill-will.
However, be very cautious and do not divulge any material information. Especially, do not discuss or provide any confidential information to the buyer. If you are interested in selling to this buyer, providing information will come much later.
Hire your team of advisors
Many who make unsolicited offers are serial buyers with lots of experience and access to substantial resources and talent. They know how to negotiate in their favor and get deals done. In contrast most likely, the sale of your business will be the only transaction you will undertake. Learning on the fly is highly discouraged. You can get in over your head quickly. Therefore, balance the playing field by lining up your team of advisors.
Who should be on your team? What role do they play?
Investment Banker or Merger & Acquisition Advisor
An investment banker or M&A Advisor can help you evaluate the offer and understand your options. Often, unsolicited offers are not the best deals you can obtain – there is a high likelihood that other buyer(s) will offer a better deal(s). An investment banker can act as quarterback orchestrating and managing a sales process that truly “tests the market” for your business. Alternatively, if the offer is reasonable and you would like to proceed with the deal, the investment banker can help negotiate and execute the transaction.
Because M&A is a specialized legal field, engaging an attorney with transactional experience is critical. They will know the ins-and-outs of the legal agreements and help reduce your post-deal liabilities.
A tax specialist can provide preliminary assessments of the tax implications of a deal and advise on deal structure. This will give you a good idea of your after-tax proceeds, which is ultimately what matters.
A wealth advisor can help you prepare your investment philosophy, execute those investments and advise you with trust and estate issues.
Further comments on unsolicited offers...
Know your personal goals, objectives and expectations so you can evaluate whether the unsolicited offer will meet them or not.
Rarely is an unsolicited offer the best offer available. The buyer who makes the unsolicited offer is almost never the eventual buyer willing to pay the most. Know what your business is worth.
To maximize the value of your business, you will need to create a competitive market among several bidders. It is the only way to truly see what your business is worth. And this puts you in a strong negotiating position. Plus, it provides back-up offers.
Focus on deal structure and net after tax proceeds, not price.
Throughout a business sale process, stay focused on running the business like it will never be sold. One of the worst things that can happen is that you get distracted and the business suffers during this process.
Get help from experienced advisors. Selling a business requires a lot of work and man-hours and involves many potential pitfalls that can kill a deal.
-- By Jason Wilcox, Founder of Wilcox Investment Bankers